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NYSE Interim Chief Pledges to Embrace Reform

As John Reed begins his job, pressure builds for an overhaul of the exchange and its board.

September 27, 2003|Walter Hamilton | Times Staff Writer

NEW YORK — In his first visit to the New York Stock Exchange since being named its interim chairman, John S. Reed pledged Friday to reform the Big Board's governance and to swiftly appoint permanent senior management for the world's biggest stock market.

In a letter to NYSE members, Reed said he would move quickly to implement changes "to reestablish trust and confidence in the NYSE and its governing practices."

While divulging no details of his plans, Reed promised to "embrace, and make appropriately transparent, new governance procedures."

His pledge came as external pressure continued to build on the exchange to undertake a sweeping overhaul, starting with a transformation of its board.

That process began Thursday when H. Carl McCall, who co-headed a special NYSE governance committee, resigned amid withering criticism of his defense of the oversize compensation package that led to Richard Grasso's ouster as NYSE chairman Sept. 17.

McCall said he wanted to give Reed a clean slate to work with.

On Friday, the AFL-CIO sent a letter to Reed asking that Kenneth G. Langone, an NYSE board member and close friend of Grasso, be removed from all NYSE committees and not be renominated for another term on the board.

More than any other Big Board director, Langone has become a lightning rod for criticism of Grasso's pay.

Langone was chairman of the exchange's compensation committee from 1999 until June, the period during which Grasso was awarded some of his largest paychecks.

"You have to get at the architects of excessive compensation," said Bill Patterson, AFL-CIO director of investments. "The board of directors must be accountable, and Mr. Langone in particular" must be.

The union sent similar letters to General Electric Co. and four others on whose boards Langone serves, arguing that he has frequently granted enormous compensation to CEOs.

Langone did not return a call left at his office Friday. He has said he would not resign, though several other directors are expected to step down in coming weeks.

Reed arrived at the Big Board about 3 p.m. EDT Friday. He was named Sunday to his temporary post but was on vacation in France and did not return to New York until Friday.

An NYSE spokesman had no comment on his arrival and said he did not know with whom Reed met while at the exchange.

Thus far, many NYSE traders appear to be cautiously hopeful that Reed will restore the organization's credibility with the public without ushering in wholesale changes that endanger their jobs or incomes.

"The membership is optimistic," said Theodore Weisberg, president of Seaport Securities Corp., a floor brokerage firm. "Though there are many who are not familiar with Reed, they're willing to give him the benefit of the doubt."

One of Reed's first official tasks will come Monday when he is scheduled to meet with William H. Donaldson, the chairman of the Securities and Exchange Commission, to discuss proposed governance reforms.

The exchange had been readying a long-awaited proposal detailing steps it would take to improve its governance practices.

But Reed is expected to jettison that report in favor of a more comprehensive analysis of potential reforms.

Reed said this week that the 27-member NYSE board should be trimmed back to no more than 12 people. That would roughly match the size of many corporate boards and would be viewed by many outsiders as a significant change.

"I'm quite encouraged by that comment," said Benn Steil, senior fellow at the Council on Foreign Relations and an expert on markets. "Cutting the board down to 10 or 12 is more radical than it may seem at first blush."

Many critics are calling for Reed to trim the influence of Wall Street securities firms, which hold 12 board seats.

In his resignation, McCall outlined seven potential NYSE reforms, including separating the exchange's regulatory function from its market operations.

Bloomberg News was used in compiling this report.

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